7.5 Business Ratios

The Business ratios give an overall idea of how profitable and at what risk level F & R Auto will operate at. The ratio table gives both time series analysis and cross-sectional analysis by including industry average ratios. As can be seen from the comparison between industry standards and F&R's own ratios, there is some differences. Most of these are due to the fact that there is a very large variance in assets, liabilities, financing, and net income between companies in this industry due to the vast differences in company size.

Overall the company's projections show a company that faces the usual risks of companies in this industry and one that will be profitable in the long-run. The company shows that it has higher SG&A costs than other competitors, however management has deliberately overstated costs and minimized profits in order to create a "safe" or "buffer" zone in case of hard times or other unforeseeable problems. Pre-tax return on net worth and pre-tax return on assets appears to be very high, especially within the first two years, however this is due to the fact that the company will be operating with fewer assets than most companies in the first few years until it can build up enough cash to acquire the tools and facilities that are desired and go beyond the "adequate" level.

Ratio Analysis

Year 1

Year 2

Year 3

Industry Profile

Sales Growth

0.00%

12.00%

7.57%

7.00%

Percent of Total Assets

Accounts Receivable

11.11%

9.71%

9.01%

8.80%

Inventory

6.21%

5.43%

5.04%

9.60%

Other Current Assets

0.00%

0.00%

0.00%

23.80%

Total Current Assets

38.34%

57.25%

67.71%

42.20%

Long-term Assets

61.66%

42.75%

32.29%

57.80%

Total Assets

100.00%

100.00%

100.00%

100.00%

Current Liabilities

24.27%

18.93%

16.83%

34.80%

Long-term Liabilities

61.63%

42.73%

32.27%

24.70%

Total Liabilities

85.90%

61.65%

49.11%

59.50%

Net Worth

14.10%

38.35%

50.89%

40.50%

Percent of Sales

Sales

100.00%

100.00%

100.00%

100.00%

Gross Margin

90.00%

90.00%

90.00%

n.a.

Selling, General & Administrative Expenses

89.32%

84.89%

86.42%

75.20%

Advertising Expenses

1.34%

1.50%

1.39%

1.30%

Profit Before Interest and Taxes

2.03%

8.15%

5.81%

1.70%

Main Ratios

Current

1.58

3.02

4.02

1.17

Quick

1.32

2.74

3.72

0.65

Total Debt to Total Assets

85.90%

61.65%

49.11%

59.50%

Pre-tax Return on Net Worth

42.28%

101.88%

49.94%

1.80%

Pre-tax Return on Assets

5.96%

39.07%

25.41%

4.60%

Additional Ratios

Year 1

Year 2

Year 3

Net Profit Margin

0.68%

5.11%

3.58%

n.a

Return on Equity

29.59%

71.32%

34.96%

n.a

Activity Ratios

Accounts Receivable Turnover

5.51

5.51

5.51

n.a

Collection Days

57

63

64

n.a

Inventory Turnover

10.91

10.41

10.21

n.a

Accounts Payable Turnover

11.87

12.17

12.17

n.a

Payment Days

27

30

30

n.a

Total Asset Turnover

6.12

5.35

4.97

n.a

Debt Ratios

Debt to Net Worth

6.09

1.61

0.96

n.a

Current Liab. to Liab.

0.28

0.31

0.34

n.a

Liquidity Ratios

Net Working Capital

$4,111

$14,352

$22,070

n.a

Interest Coverage

1.92

9.61

8.35

n.a

Additional Ratios

Assets to Sales

0.16

0.19

0.20

n.a

Current Debt/Total Assets

24%

19%

17%

n.a

Acid Test

0.87

2.23

3.19

n.a

Sales/Net Worth

43.41

13.95

9.76

n.a

Dividend Payout

0.00

0.00

0.00

n.a

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